IPO Note - Stove Kraft Ltd By Angel Broking
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Emerging Home Solutions Brand
Stove Kraft is a kitchen solutions and an emerging home solutions brand. Further, Company is one of the leading brands for kitchen appliances in India and is one of the dominant players for pressure cookers and amongst the market leaders in the sale of free standing hobs and cooktops.
Positives:
(a) A one stop shop for well recognized, award winning portfolio of kitchen solutions brands with a diverse range of products across consumer preferences
(b) Widespread, well connected distribution network with a presence across multiple retail channels and a dedicated after-sales network
(c) Manufacturing capability with efficient backward integration
(d) Professional management and extensive experience in the kitchen solutions industry, and a young and dynamic workforce.
Investment concerns:
(a) The trademark for their marquee brand ‘Pigeon’ is the subject matter of litigation
(b) Company source their raw materials from third parties with whom they do not have long term contract
(c) Company rely heavily on their brand portfolio, and their inability to successfully maintain and promote their brand portfolio may adversely affect their results
(d) There are various proceedings involving the Company, their Promoters and their Director.
Outlook & Valuation:
Company has priced its issue at 34.5x PE on a trailing basis, its peers TTK Prestige and Hawkins Cookers are currently trading at 61.0x and 47.5x respectively. On FY20 basis, the Company priced its issue at 301.5x PE. Due to cost cutting measures, Company margins improved in the H1FY21 which is not sustainable. Cost such as travelling, advertisement reduced in H1FY21 due to Covid-19 are going to come back once business comes back to normalcy. Company’s brand value, margins and return on capital are lower than its peers so it won’t get such premium valuation like its peers, so we recommend "NEUTRAL" rating to the Stove Kraft IPO issue.
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On the higher side, immediate resistance is seen around 36000 - 36200 levels - Angel One
